Auto Ancillary Stocks Gain Traction as India's Auto Sector Accelerates
India's auto sector is showing robust momentum as we move through 2026. The industry built on a solid 2025 foundation, with auto retail sales reaching 28.16 million units last year. That represents a healthy 7.7% year-on-year growth. This expansion touched all segments including passenger vehicles, two-wheelers, and commercial vehicles.
Improving demand conditions and government tax relief measures have provided additional support. These fundamental improvements are now clearly visible in market behavior. Auto ancillary segments, particularly those serving two- and three-wheeler manufacturers, are demonstrating strong relative strength. They are outperforming other industries, signaling rising investor interest across the entire auto supply chain.
Legendary investor Peter Lynch once highlighted that during such cycles, it often makes sense to "buy the companies that sell the bullets." This points investors toward suppliers and proxies rather than focusing solely on final manufacturers. In this context, we examine four auto ancillary stocks that deserve attention.
Shriram Pistons & Rings Ltd: Diversified Engineering Powerhouse
Shriram Pistons & Rings leads our list as a diversified engineering business. The company ranks among India's top manufacturers of pistons, piston rings, pins, and engine valves. Its core portfolio serves the internal combustion engine segment, but recent strategic moves have expanded its presence into electric vehicle components.
Through subsidiaries like SPR EMFI and SPR TGPEL, the company now produces EV motors, controllers, and precision injection-moulded components. Shriram Pistons supplies to diverse end-markets including passenger vehicles, commercial vehicles, tractors, off-highway equipment, railways, and marine applications. The company maintains strong relationships with major players like Maruti Suzuki, Tata Motors, Cummins, and Caterpillar.
Growth Strategy: Shriram Pistons is pursuing an ICE-agnostic diversification strategy. The company aims to build a multi-product engineering franchise. Key initiatives include scaling up the EV powertrain business with commercial production at the Coimbatore motor plant. The company is also executing phase-III expansion at the SEL Pithampur facility.
Management has highlighted an active merger and acquisition pipeline to drive non-linear growth in adjacent engineering domains. The company is investing in next-generation technologies including components for hydrogen-ICE, hybrid powertrains, and ethanol-blended fuels. This approach ensures relevance across evolving propulsion platforms.
Revenue growth between FY23 and FY25 resulted from higher production volumes and consolidation of acquired subsidiaries like SPR Takahata and SPR TGPEL. These acquisitions expanded the addressable customer base. Operating margins improved in 2023-24 and stabilized above 23%. This improvement came from a favorable sales mix shift toward higher-margin, value-added products.
Increased aftermarket contribution and ongoing cost-optimization initiatives helped absorb inflationary pressures. Profit growth outpaced revenue growth, reflecting operating leverage and tighter cost controls. Net margins expanded to the mid-teens range. Operating cash flows remained healthy, and the group maintains a net debt-free position.
Fiem Industries Ltd: Lighting and Signaling Specialist
Fiem Industries specializes in automotive lighting systems, signaling equipment, and rear-view mirrors. Its product portfolio spans LED and conventional headlamps, tail lamps, blinkers, and precision electronic components like canisters and bank-angle sensors.
The company derives nearly 97% of its revenue from the two-wheeler segment. Fiem is gradually expanding its presence in three-wheelers and passenger vehicles. The company has strong tier-1 original equipment manufacturer relationships with more than 50 customers. These include Honda, TVS, Yamaha, Suzuki, Royal Enfield, and Mahindra. This gives Fiem deep integration across India's two-wheeler supply chain.
Growth Strategy: Fiem's strategy centers on scaling its four-wheeler vertical while strengthening in-house electronics and premium lighting capabilities. The company has secured new orders from Mahindra for higher-value components. It is pursuing deals with Mercedes-Benz and Force Motors.
Key initiatives include evaluating a dedicated four-wheeler manufacturing plant. The company is setting up a Pune warehouse for just-in-time OEM supplies. Fiem is accelerating innovation in CAN-based lighting animations, ambient lighting, and adaptive lighting systems through its Gurugram research and development center.
Revenue growth between FY23 and FY25 came primarily from strong two-wheeler production volumes. These grew around 11% in FY25, along with higher offtake from TVS, Yamaha, and Royal Enfield. Operating margins remained stable in the 13-14% range. This stability resulted from operating leverage and a gradual shift toward LED lighting solutions, which offer higher realizations.
The LED contribution increased from 52% in FY24 to nearly 64% by the second quarter of FY26. This improved the overall sales mix. Profit growth outpaced revenue growth, aided by better cost absorption and efficiency gains from in-house electronics manufacturing and localization.
Operating cash flows strengthened in FY25, partly supported by ₹50 crore in insurance recoveries related to the Rai plant fire. This has moderated as the company progressed with a ₹100 crore capital expenditure plan for FY26. This plan aims at capacity expansion and advanced testing infrastructure to support future growth in premium and four-wheeler segments.
Sandhar Technologies Ltd: Safety-Critical Components Manufacturer
Sandhar Technologies operates a vertically integrated auto ancillary business. The company specializes in manufacturing and assembling safety-critical components. Its product portfolio spans lock and mirror assemblies, operator cabins for off-highway vehicles, aluminium die-casting, and sheet-metal components.
While the two-wheeler segment remains the core revenue contributor, Sandhar also caters to passenger vehicles, commercial vehicles, and construction equipment. The company has strong tier-1 OEM relationships with leading customers including Hero MotoCorp, TVS Motors, Honda, Bajaj Auto, and Royal Enfield. Sandhar has recently expanded into EV components, including chargers and motor controllers.
Growth Strategy: Sandhar is consolidating operations into four verticals: Aluminium, Sheet Metal, Proprietary Automotive, and Construction Equipment. This consolidation aims to improve execution and scalability. A key near-term objective is turning around overseas subsidiaries in Romania, Spain, and Mexico. Management targets financial neutrality by the end of FY26.
On the growth front, Sandhar aims to scale EV-related revenues to ₹15 crore in FY26. The company plans to expand aluminium die-casting capacity following the Sundaram-Clayton acquisition. Sandhar continues to evaluate inorganic growth opportunities, supported by a proposed ₹500 crore qualified institutional placement to strengthen its balance sheet for strategic acquisitions.
Strong revenue between FY23 and FY25 resulted from capacity ramp-ups in aluminium die-casting and sheet-metal operations. Incremental contributions from acquisitions also played a role. In the first half of FY26, the Sundaram-Clayton aluminium business contributed over ₹1,98 crore, though at a lower EBITDA margin of around 5%. This diluted consolidated margins in the near term.
Despite this, operating margins improved steadily to 11%. This improvement came from scale benefits and a richer product mix, including higher-value smart locking systems and advanced vision components. Profit margins expanded consistently, but FY26 margins faced temporary headwinds from new plant setup costs in Pune and South India.
Translation losses from overseas subsidiaries, where efficiency initiatives are underway, also affected margins. Operating cash flows fell as working capital requirements increased to support higher volumes and evolving customer payment terms. A ₹300 crore capital expenditure program for FY26 has absorbed cash. Management expects cash-flow intensity to ease as major expansion phases near completion.
Automotive Axles Ltd: Axle and Brakes Specialist
Automotive Axles operates as a joint venture between the Kalyani Group and Meritor Inc. of the USA. The company functions as a vertically integrated tier-1 supplier of axles and brakes. Its product portfolio includes drive axles, non-drive axles, front steer axles, and drum and disc braking systems.
Automotive Axles maintains a strong focus on the medium and heavy commercial vehicle segment. The company also caters to defence and off-highway applications. Automotive Axles has deep OEM integration and derives a significant share of business from Ashok Leyland (around 60-70%). Other key customers include Tata Motors, Mahindra & Mahindra, and Daimler India, making the company a critical supplier in India's commercial vehicle ecosystem.
Growth Strategy: The company highlights a shift toward a direct-to-OEM sales model, moving away from routing sales through Meritor HVS. This transition is expected to support EBITDA improvement over time. Automotive Axles has outlined a ₹120 crore capital expenditure program focused on capacity enhancement, replacement of ageing equipment, and rollout of Industry 4.0 automation at its Mysuru facility.
Growth priorities include addressing product gaps in the bus segment, particularly 15-metre coach axles. The company is securing approvals for EV applications like electric tractor-trailers and tippers. Management is emphasizing cost optimization to navigate cyclical softness in the commercial vehicle market.
Automotive Axles revenue moderated in FY25 and the first half of FY26 due to a softer medium and heavy commercial vehicle cycle and unfavorable product mix. A higher share of tractor-trailers reduced axles and brakes per vehicle compared with multi-axle trucks. Monsoon-led weakness in tipper demand impacted higher-margin volumes.
Despite lower revenues, operating margins remained resilient around 11-12%. This resilience came from automation initiatives, total productive maintenance practices, and productivity improvements. Commodity price deflation, with about a 3.5% impact, was largely passed through to OEMs via pricing mechanisms.
Profit after tax stayed broadly stable, aided in the first half of FY26 by one-time income items including writebacks of excess provisions and foreign exchange gains. Operating cash flows were volatile across periods, reflecting working-capital movements and inventory adjustments. Cash flows improved meaningfully as the company progressed toward a net debt-free position, completing term-loan repayments in FY25.
Ongoing cash deployment is largely directed toward phase-1 automation upgrades at the Mysuru plant. These upgrades align with Automotive Axles' long-term efficiency and margin-stability objectives.
Conclusion: Evaluating Auto Ancillary Opportunities
Top auto ancillary stocks often move ahead of original equipment manufacturers during an upcycle. They benefit from rising volumes, better product mix, and operating leverage. However, outcomes vary by segment, execution capabilities, and balance-sheet strength.
Investors should always track industry-level shifts and business fundamentals. They should align investment decisions with their own risk appetite. When conducting due diligence, investors should evaluate company fundamentals, corporate governance, and stock valuations as key factors.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
